Business Loans - 7 Reasons Not
to Use a Bank |
By Rick Hendershot |
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So you're a small business owner and you need a business loan to
further the objectives of your company. Where do you turn
When it comes to a business loan or commercial real estate loan,
there are many good reasons NOT to turn to a traditional bank.
Here are some of the most important. Many small business owners,
will find most of these points directly applicable to them.
"The bank turned me down"
Of course the biggest
reason most small businesses go looking for alternative sources
of commercial real estate loans is because they have been
declined by the banks. Small businesses are often forced
to look for other sources of funding because the banks will not
provide it. This is not even listed below, since there are many
positive reasons to prefer non-bank funding, even if you
can get approval from a bank.
Reason 1 - The
minimum loan amount available from banks is too high
In many cases banks will not offer a commercial real estate loan
for less than $250,000. So if you only need $100,000 you will be
pushed to borrow more than you actually need. Or if your
property will not support a $250,000 loan you are out of luck
with the banks.
The solution is to look for an
alternative funding source that can provide a lower minimum
amount. Some commercial financing services will go as low as
$100,000, and will often give you better terms and much better
service than the traditional banks.
Reason 2 - Many
traditional banks will charge you an up-front "commitment fee"
just to examine and process your application
Banks
usually think they are doing you a favor by processing your
application, so they will often make you pay for their
attempts to win your business.
The solution is to
find other established and credible lenders who are eager to
offer you better service without charging you a fee for
processing your application.
Reason 3 - Most
traditional banks will severely limit the amount of cash you can
get from a commercial real estate loan.
Banks usually
have very narrow rules about where you can use the cash derived
from a commercial real estate loan. If you need a cash injection
for your business, or want to use the proceeds from a commercial
mortgage as a down payment for another property, most banks will
not be interested in that type of loan.
Look for a lender
who does not restrict your use of the cash derived from
commercial real estate loans. Some services, such as AEX
Commercial Financing Group, LLC can provide
commercial loans that give you up to $1 million in cash to
use however you want.
Reason 4 - Most traditional
banks require detailed business plans before approving a
commercial real estate loan
Many small businesses
have business plans, but they are usually not sufficiently
detailed to satisfy the banks. As a result, applying for a
commercial real estate loan from a bank can turn into a very
time consuming and expensive process. Creating the type of
business plan that is adequate for the banks will usually cost
thousands of dollars.
Find a lender who does not require
business plans as part of their underwriting process for a
commercial loan.
Reason 5 - Many traditional banks
require tax returns for a commercial real estate loan
If you are either unable or unwilling to provide tax returns for
your business, many banks will not give you a commercial real
estate loan. Even some of those banks that do not request tax
returns will ask borrowers to sign IRS Form 4506, which
authorizes the lender to obtain tax returns directly from the
IRS.
When looking for alternative sources of funding make
sure they do not require either of these conditions (tax returns
or access to your IRS records).
Reason 6 - Most banks
will require cross collateralization of personal property
Even though there is sufficient collateral in your business
property to secure a commercial real estate loan, many banks
will require you to provide additional security by putting up
personal assets. Business people have become so used to banks
doing this that they just assume it is a necessity.
But the truth is, over-collateralization like this can restrict
your personal freedom to dispose of your personal assets as you
see fit. And fortunately, there are non-traditional lenders who
do not require cross collateralization at all.
Reason
7 - Most banks require income verification
Many small
business people and self-employed borrowers have incomes that
are erratic and difficult to document. There are many legitimate
reasons for this, but traditional banks generally do not care.
Very few of them will provide commercial real estate loans
without complete income verification.
An alternative used
by some non-traditional lending sources is to use the "Stated
Income" approach. Look for a lender who uses the Stated Income
approach and does not require income verification. |
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